Yahoo Finance How Much Does A BTO HDB Flat Really Cost?
Questions were raised in parliament in recent months over the affordability, pricing and development costs of new Housing and Development Board (HDB) flats.
In November, Leader of the Opposition Pritam Singh queried Second Minister for Finance and National Development Indranee Rajah for details of the development costs of Build-To-Order (BTO) flats and subsidies provided to buyers. The exchange led to media queries on how BTO prices are determined, and the development costs incurred by HDB.
In a joint statement issued by the Ministry of National Development (MND) and HDB in December that addressed the media queries, the government provided details on how they price BTO flats and how the approach is in contrast with that of private residential developers, which is priced for profit.
According to HDB, it prices its flats to keep public housing affordable to help Singaporeans own their homes. This is a key national priority and provides the foundation to raise families, bring up children, and build strong communities.
HDB therefore does not apply a profit margin on costs. To determine housing affordability, the government looks at the buyers’ household incomes and the selling prices of the flats on offer instead.
MND and HDB also elaborated on how it uses resident household incomes and Mortgage Servicing Ratio (MSR) to determine affordability and how it determines the selling prices of BTO flats.
We take a look at the points shared by MND and HDB in detail.
Read Also: 5 Things You Must Know Before Buying Your First HDB BTO
How Does HDB Determine The Affordability Of New Flats?
To determine affordability, HDB looks at the resident household incomes, and compares them with the range of flat types and selling prices on offer at every BTO launch, using benchmarks such as the MSR.
The MSR refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. MSR is capped at 30% of a borrower’s gross monthly income.
These affordability benchmarks consider a range of different household incomes, both above and below the median household income level, to ensure a wide range of BTO flats for first-time homebuyers with different housing needs and budgets. HDB also offers housing grants – tiered by household incomes – to eligible first-time buyers, providing targeted help.
In the first half of this year, the majority of flat buyers who collected keys to their new flats used 25% or less of their monthly income to service their HDB loan instalment payments (i.e. had an MSR of 25% or lower).
MND and HDB explained that this means the flat buyers can service their HDB loans using their monthly CPF contributions, with little or no cash outlay.
H12022 | Flat buyers who collected keys to their new flats in non-mature estates | Flat buyers who collected keys to their new flats in mature estates |
Those who used 25% or less of monthly income to service HDB loan instalment payments (i.e. had an MSR of 25% or lower) | 90% | More than 80% |
Source: MND & HDB
Setting The Selling Prices Of BTO Flats (With Subsidies Varying Across Projects)
With many BTO projects launched every year across the island in different housing estates, new flat selling prices will not be uniform, and will have to take into account the different attributes and locational factors of the flats on offer at each BTO launch.
This measure attempts to ensure fairness for the different buyers as these HDB flats can be bought and sold in the resale market after the 5-year Minimum Occupation period, and the locational and other flat attributes will be reflected in the resale prices then and any benefits will accrue to the flat owner or seller.
In determining the pricing of new BTO flats, HDB first establishes the market value of the flats by considering the prices of comparable resale flats nearby. This is influenced by prevailing market conditions and the individual attributes of the flats.
HDB then applies a significant subsidy to the assessed market values to ensure that new flats are affordable for flat buyers. The difference in prices between the comparable resale flats and subsidised flats broadly reflects the market subsidies provided for the new flats, after accounting for differences in attributes, which include tenure.
Besides the varying attributes of new flats across BTO projects, market conditions may also fluctuate between BTO launches, hence the extent of market subsidies applied by HDB will vary across BTO projects in different launches.
The varied market subsidies is aimed at protecting homebuyers from market fluctuations and ensures that BTO flats remain stable and affordable. When the resale prices move up, HDB will, in tandem, need to increase market subsidies to keep BTO prices affordable.
Read Also: How To Successfully Bid For A BTO Flat Within Three Tries
HDB’s Pricing Approach To BTO Flats Is Different From Private Developers
HDB’s flat pricing approach is totally separate and independent from the BTO projects’ development costs. By increasing the subsidy applied in a rising property market, BTO flat prices has been kept relatively stable, according to HDB.
The government noted that even when construction costs increased by almost 30% in the past 2 years partly due to the pandemic, prices of BTO flats were still relatively stable in a bid to keep public housing affordable.
The approach is not only reflected during challenging times. HDB noted that the increase in BTO flat prices in 2012 compared with to 1-3Q2022 has kept within the growth in resident household incomes.
The average BTO selling price per square foot grew for non-mature estates by 16%, when comparing the first 1-3Q2022 to 2012. For mature estates, the same comparison showed a growth of 22%.
Average BTO selling price per square foot
Period | Non-mature estates | Mature estates |
2012 | $311 | $479 |
1-3Q2022 | $362 | $584 |
Growth (%) | 16% | 22% |
Source: MND & HDB
Meanwhile, the median resident employed household income grew by 26% from 2012 to 2021. The resident employed household income at the second income deciles grew at a faster rate during that period, by 32%.
HDB provides housing grants to help targeted demographic groups achieve their home ownership aspirations, and housing grants have also increased several times over the same period.
HDB Pays Fair Market Value For Land That Is Developed Into Public Housing
There are differences between land used for public compared with private residential use. Land used for public housing is meant for providing affordable homes to Singaporeans, and buyers of public housing flats are subject to more restrictions than flats sold in private residential projects.
HDB pays fair market value for land that is developed into public housing. The fair market value is determined independently by the chief valuer in accordance with market conditions and established valuation principles.
HDB determines the fair market value for land earmarked for public housing at a price that is lower compared to the land price of private housing in the same area. This differential reflects the more stringent eligibility criteria and conditions that buyers of public housing must meet, like income, citizenship, and minimum occupation period. Proceeds from HDB’s land purchase are paid back into the past reserves, which are in turn invested to generate returns for future generations of Singaporeans.
Publicly Available Information On BTO Projects And Pricing
HDB discloses information are generally not made available for private residential development projects. For example, recently transacted prices of comparable flats are shared at each BTO launch, alongside the selling prices for each BTO project. HDB prices flats are aimed at affordability while private developers price their flats for profit, as seen in their annual reports.
There are also relevant price-related information provided for different family archetypes. At each BTO launch, there are illustrations to show how homebuyers with different household incomes can afford different flat types.
In addition, HDB shares publicly available information on construction and development costs of BTO projects:
The construction cost of every HDB BTO project: successful tenderers by contract sums are published on the HDB InfoWEB and in GeBIZ.
The cost of building flats and the revenue from the sale of flats: The information are published in HDB’s Annual Report. HDB’s annual report captures development loss from its homeownership programme.
Read Also: How Are New BTO Flats Priced By HDB?
Cost Breakdown For BTO Flats According To Land Costs, Building Costs, Etc
In the 2021/22 financial year (FY), HDB’s cost of flat sales completed (i.e. where keys have been issued to buyers) totalled $5.346 billion.
HDB and MND disclosed that the development costs for 13,506 BTO units that were completed and handed over to home buyers in the discussed FY were:
$3.167 billion in land development costs
$2.077 billion in building development costs
$102 million for other costs (costs incurred from former HDB flat owners who had to sell their flats due to infringement, or other reasons)
The total cost of flats sold and completed (that is, with keys issued to buyers) was at $5.346 billion for 13,506 units in the latest FY. This was up from $3.065 billion for 8,124 units in FY2020/21.
For flat sales completed (i.e. keys are issued to buyers) – Breakdown of Cost of flats
Source: MND & HDB
So How Much Does A BTO HDB Flat Cost (On Average)?
The data, when divided shows the average cost per unit of a completed BTO flat at S$396,000 for FY2021/22.
In FY2020/21, the average cost was S$377,000, and for FY2019/20, about S$352,000. The figures do not account for flat attributes, such as flat types and locations.
This puts average building development costs of about S$154,000 per BTO flat completed in FY2021/22, compared to about S$143,000 in the year before, and about S$138,000 for FY2019/20.
The average land development costs are at about $234,000 per BTO flat in FY2021/22, about $224,000 in the year before, and about $202,000 for FY2019/20.
Highly Subsidised BTO Flats Cannot Fully Cover Total Development Costs
In its latest financial report for FY2021, HDB posted a record high deficit of S$4.37 billion, driven by a shortfall on its public housing Home Ownership Programme that amounted to S$3.85 billion.
The deficit the stems mainly from the gross loss on flat sales completed (i.e. where keys are issued to buyers in the FY), disbursement of CPF housing grants to eligible resale flat buyers, and expected loss for flats that commenced development in the FY.
As BTO flats are highly subsidised, their selling prices cannot fully cover development costs, which include construction and land costs. That is why HDB incurs significant deficits every year in its Home Ownership Programme, which are reflected in HDB’s Annual Reports found on the HDB InfoWEB.
HDB has reiterated that it will continue to monitor housing market conditions closely and remains committed to keeping public housing affordable and accessible to support the home ownership aspirations of Singaporeans.
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